Euro-Zone Economy May Still Be in Recession — Think Tank

Unemployment is too high and growth is subdued, but at least the euro zone is on the road to recovery. That’s been the refrain from euro-zone officials over the last six months, ever since it became clear the 18-nation economy had stopped contracting last year.

But is the recovery actually underway? Or has the euro-zone economy merely settled on a small ledge, ready to start falling again at the slightest gust from outside forces?

“Several quarters of positive but extremely weak economic developments since early 2013 do not constitute sufficient evidence that the euro area recession that started after 2011Q3 is over,” the committee said in a statement.

The CEPR has been calling euro-area recessions since the single currency launched in 1999, trying to do for the euro zone what the National Bureau of Economic Research does for the U.S. economy. Like the NBER, the CEPR doesn’t call an end to recessions simply because growth has been positive for two consecutive quarters. Instead, both groups look at a range of variables before calling the recession over.

A few more quarters of growth at these low rates could confirm that the expansion is underway, said Philippe Weil, chairman of the committee and an economist at the Université Libre de Bruxelles.

But: “Then this is not good news,” Mr. Weil said. “If that’s an expansion, then we’re in trouble.”

In one sense, calling an end to the recession, retroactively, shouldn’t matter. But accepting that the recovery has yet to begin sends an important message to policy makers: your work isn’t over.

Corrections: A previous version of this blog post misstated the name of the think tank. It is the London-based Centre for Economic Policy Research, not the Centre for European Policy Reform. Also, Philippe Weil is on long-term leave from Sciences Po and is now on the faculty of the Université Libre de Bruxelles.